IRS scales back Coinbase investigation

The Internal Revenue Service has decided to limit its probe of Coinbase users to those who engaged in transactions of $20,000 or more, according to a court filing.

The IRS sent a broad request known as a John Doe summons last November seeking information on all of the San Francisco-based digital currency service’s users in an effort to ferret out possible tax evaders (see IRS seeks information on bitcoin users from Coinbase). Coinbase is one of the largest bitcoin and ethereum exchanges in the U.S., and the Treasury Inspector General for Tax Administration urged the IRS in a report last year to do more to ensure taxpayers aren’t using virtual currencies like bitcoin to avoid taxes (see IRS warned to safeguard against illegal use of virtual currency).

The IRS requested a federal court in March to force the exchange to hand over the records, but two Coinbase users asked the courts in May to quash the summons.

Andrew Harrer/Bloomberg

Three Republican lawmakers in Congress who chair key committees and subcommittees related to tax policy wrote a letter in May to IRS Commissioner John Koskinen expressing concerns about the scope and nature of the summons (see GOP lawmakers question IRS summons to Coinbase users).

“We strongly question whether the IRS has actually established a reasonable basis to support the mass production of records for half of a million people, the vast majority of whom appear to not be conducting the volume of transactions needed to report them to the IRS,” House Ways and Means Committee Chairman Kevin Brady, R-Texas, Senate Finance Committee Chairman Orrin G. Hatch, R-Utah, and House Ways and Means Oversight Subcommittee Chairman Vern Buchanan, R-Fla., wrote in a letter to Koskinen. “Based on the information before us, this summons seems overly broad, extremely burdensome, and highly intrusive to a large population of individuals.”

In a court filing last week, first reported by the digital currency news site Coindesk, the IRS limited the scope of the original request. It said the U.S. is seeking information for users “with at least the equivalent of $20,000 in any one transaction type (buy, sell, send, or receive) in any one year during the 2013-15 period.”

The IRS court filing also said it is not seeking information on “certain identified users who are known to the Internal Revenue Service.” However the narrowed summons request is still asking for a great deal of information on the Coinbase users covered, including their “name, address, tax identification number, date of birth, account opening records, copies of passports and/or driver’s license, all wallet addresses, and all public keys for all accounts/wallets/vaults.”

An IRS spokesperson declined to comment based on ongoing and pending litigation.

Coinbase spokesperson Megan Hernbroth emailed Accounting Today, “We aren’t making any further comments at this stage outside of our last public statement on March 16.”

In its March statement, Coinbase said, “Our legal team is in the process of reviewing the IRS’s motion. We will continue to work with the IRS to assess the government’s willingness to fundamentally reconsider the focus and scope of the summons. If it does not, we anticipate filing opposition papers in court in coming months. We will continue to keep our customers updated as to status.”